Bitcoin’s 1.7% inflation rate performs better than the Fed’s 2% target

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The Bit­coin infla­tion rate fell from 50% in 2011 to 4% in 2020 pri­or to the halv­ing and now stands at 1.7%, a fig­ure way below the U.S. Fed­er­al Reserve’s mon­e­tary infla­tion rate tar­get of 2%. 

Bitcoin fundamentals remain unaffected, despite the FED increasing interest rates and now plans to reconsider the inflation rate target.

While the rate demon­strates Bitcoin’s rapid and main­stream adop­tion, the dig­i­tal currency’s fun­da­men­tals have remained unaf­fect­ed by 2022’s neg­a­tive GDP growth, which is already mount­ing pres­sure on the U.S fed to recon­sid­er its 2% infla­tion rate target. 

Accord­ing to reports, the US Fed­er­al Reserve ought to recon­sid­er the 2% infla­tion rate tar­get, giv­en the ris­ing inter­est hikes and the cost-ben­e­fit of a 4% mon­e­tary infla­tion rate. 

Some experts argue the ben­e­fit of increas­ing the rate would result in high­er aver­age nom­i­nal inter­est rates that would give enough room for imple­ment­ing mon­e­tary poli­cies, and per­haps elim­i­nate the risk of zero low­er bound constraints. 

Despite Bit­coin being sus­cep­ti­ble to macro announce­ments and infla­tion data, blockchain pro­po­nents argue the tech­nol­o­gy could help reduce infla­tion and solve the world’s mon­e­tary prob­lems as evi­denced by Bitcoin’s sol­id fun­da­men­tals in the wake of fail­ing macro­da­ta. Satoshi Nakamo­to designed BTC’s mon­e­tary infla­tion rate at a fixed rate deter­mined by the coin’s ris­ing cir­cu­la­tion until the 21 mil­lion max­i­mum cap. 

Bitcoin’s 1.7% inflation rate performs better than FED’s 2% target

The unique defla­tion­ary fea­tures of Bit­coin were put in place to con­trol the sup­ply vol­ume as well as the price. How­ev­er, the coin faced a huge back­lash from a sec­tion of the fin­tech com­mu­ni­ty that posit­ed that Bitcoin’s high volatil­i­ty rate would neg­a­tive­ly affect its users. 

Despite crit­i­cism, volatil­i­ty has played an impor­tant role in the suc­cess of Bit­coin and oth­er alt­coins. Inter­est­ing­ly, ana­lysts argue there is a need for Bit­coin to main­tain a lev­el of sta­bil­i­ty for it to remain a top-per­form­ing glob­al currency. 

Mean­while, unlike nation­al cur­ren­cies like the U.S. dol­lar whose infla­tion could be adjust­ed, Bitcoin’s infla­tion rate is pre­dictable and can­not be con­trolled by cen­tral­ized entities. 

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